GST Circular Review and Industry Concerns
The recent circular issued on September 9, mandating manufacturers and importers to adjust maximum retail prices (MRPs) of unsold stocks following a reduction in GST rates, is under review.
Industry Challenges
- Businesses face difficulties in fully reducing prices due to accumulated input tax credit (ITC) from previously paid higher input taxes.
- The absence of refunds for these higher input taxes adds to their challenges.
Government Response
- The Union Ministry of Finance and the Department of Consumer Affairs are assessing industry feedback concerning accumulated ITC for distributors and dealers.
- Potential adjustments to revised pricing for unsold stocks may be considered until December 31.
- Clarifications may be issued for products with fixed small sachet prices and items currently sold at discounted prices.
Industry Feedback
- Businesses express that the reduction in GST rates creates a double whammy: an accumulation of ITC and no refund due to the inverted duty structure.
- Flexibility in price reduction, accounting for the ITC impact, could provide transitional relief.
Broader GST Issues
- The finance ministry is exploring ways for companies to address potential losses from the inverted duty structure post-GST rate cuts.
- The restructuring of rates from 12% to 5% without corresponding raw material rate adjustments has led to duty inversion in sectors like FMCG and packaging.
- The construction and hospitality sectors have requested a special GST mechanism and clarity on ITC during a meeting with the CBIC.
Conclusion
- The review aims to balance industry needs with regulatory compliance, focusing on easing transitional challenges during GST rate adjustments.
